German Exports Slide by 1.7% in September as Trump Tariffs Loom

German Exports Decline Further, but Imports Rise Signaling Improved Demand

On Thursday, November 7, trade and industrial production data put the German economy in focus.

The trade surplus narrowed from €22.5 billion in August to €17.0 billion in September. Economists predicted a September trade surplus of €20.9 billion.

Significantly, exports slid by 1.7% in September, while imports rose by 2.1%, reflecting signs of improved domestic demand.

Industrial Production Falls but Factory Orders Rise

Industrial production figures from Germany presented a gloomy end to the third quarter, falling by 2.5% (in the previous month: +2.9%). Economists had expected production to decline by 1%.

German Economic Indicators Send Recession Signals

The industrial production and trade data reinforced expectations of a 0.2% annual economic contraction in 2024. However, September’s factory orders and October’s Manufacturing PMI offered a glimmer of hope, suggesting a potential bottoming out in the German economy.

The HCOB Manufacturing PMI increased from 40.6 in September to 43.0 in October. While manufacturing remained in contraction territory (below 50) in Q4 2024, declines in new orders slowed sharply, aligning with September’s 4.2% jump in factory orders.

Potential Setback: US Tariff Threat Following Trump’s Election

However, hopes for a sustained recovery could be short-lived following Donald Trump’s victory in the US presidential election. On the campaign trail, Trump pledged to impose tariffs on EU goods, potentially starting a trade war, which may weigh heavily on the German economy.

Daniel Kral, a Europe macro specialist at Oxford Economics, commented,

“Germany has been the weak link in Europe with its economy flat and confidence downbeat, due to recent adverse shocks and China’s rise. Another one is coming with US tariffs (10% of Germany’s goods exports). A trade war with the US will also hit the EU’s small open economies hard.”

ECB Monetary Policy Impact Analysis

In light of these challenges, the ECB might consider the latest manufacturing sector trends and the possibility of a US-EU trade war. Weakening demand for German goods could further strain the labor market, private consumption, and the economy. A gloomier outlook may fuel speculation about a 50-basis point December ECB rate cut.

EUR/USD Reaction to German Data

Before the German economic indicators, the EUR/USD dropped to a low of $1.07124 before climbing to a high of $1.07477.

However, following Germany’s trade and industrial production reports, the EUR/USD briefly dipped to a low of $1.07449 before rising to a high of $1.07565.

On Thursday, November 7, the EUR/USD was up 0.26% to $1.07557.